Following in the footsteps of the European Parliament earlier this month, the Council of the EU on Monday finalised the legislative process by adopting the Corporate Sustainability Reporting Directive, known as CSRD.
Efama, the trade association for Europe’s fund and asset management industry, welcomed the adoption of what it sees as “a crucial piece of the puzzle”, but warned that the industry still faces years of uncertainty because of the “staggered” adoption between the years 2025 and 2029.
“CSRD is undoubtedly a crucial piece of the puzzle that will allow asset managers to further promote sustainable investing and to more accurately meet their regulatory requirements,” said Tanguy van de Werve (photo), Efama’s director general in a statement.
“We commend the European Commission for its original proposal and the co-legislators for prioritising this file. However, with the availability of these corporate reports being staggered between 2025 and 2029, our industry will be left picking up the ESG data pieces in the meantime.”
Lack of ESG data ‘key impediment’
With the final approval by the Council of the EU, in which the ambassador’s of all 27 EU member states are represented, almost all companies will soon be required to publish detailed information on sustainability matters.
For fund and asset managers this means more and better data will become available on the companies in which they invest. Efama said the mandatory reporting requirements are “crucial as insufficient availability of ESG data is a key impediment to realising the full potential of the EU’s sustainable finance regulatory framework”.
Industry representatives and fund managers in recent months have increasingly made clear they are not pleased with the way the EU is introducing the new rules for sustainability reporting. Investors are keen to place their money in sustainable funds but a lack of reliable data makes it difficult for funds to guarantee that they are meeting criteria for ESG or sustainability, exposing them to possible greenwashing allegations.
Efama noted that asset managers “will undoubtedly benefit greatly from relevant, comparable, reliable and public ESG metrics of companies’ activities and financial risks”.. “However, the first available corporate reports are only expected from 2025 and the full scope for all applicable firms will only be in place from 2028 onwards. In the interim therefore, the chronic lack of corporate ESG data will unfortunately remain an issue, leading to uncertainty in the sustainable investing arena,” said Efama.
‘Making businesses accountable’
The new rules will make more businesses accountable for their impact on society and will guide them towards an economy that benefits people and the environment, said the EU Council. Data about the environmental and societal footprint would be publicly available to anyone interested in this footprint. At the same time, the new extended requirements are tailored to various company sizes and provides them “with a sufficient transition period” to get ready for the new requirements.
In practical terms, the new rules mean that companies will have to report on how their business model affects their sustainability, and on how external sustainability factors such as climate change or human right issues influence their activities. “This will equip investors and other stakeholders better for taking informed decisions on sustainability issues,” the Council said.
The new sustainability reporting rules will apply from 2025 to large listed companies with more than 500 employees, from 2026 to all large companies with more than 250 employees and a 40 million euro turnover, and from 2027 to all companies listed on regulated markets. The rules also apply to listed SMEs. An opt-out will be possible for listed SMEs during a transitional period, exempting them from the application of the directive until 2028.
From 2029, non-European companies will be required to provide a sustainability report if they generated more than 150 million euro in sales in the EU.